Top Trade Ideas for the Week January 26, 2015: Bonus Idea

• Posted by Greg Harmon
• on January 26th, 2015

Here is your Bonus Idea with links to the full Top Ten:

Honeywell, $HON, has been slowly trending higher for a year, despite the set back in October. In December it made a failed attempt to break trending resistance higher but has quickly recovered and is back over that trend line again. Friday showed both positive and negative aspects, with the trend break but the failure and long upper shadow it gives pause for a reversal. But it held the trend break and finished near the top of the range at resistance. The momentum indicators give the edge to the upside. Thee RSI is rising and bullish and the MACD crossed higher Friday, a buy signal. There is no resistance above the 103.92 high print Friday and support lower may come at 100.80 and the round number 100 followed by 97.65 and 96.75 before 95.85. Short interest is low under 1% and the company is not due to report earnings again until mid April.

Honeywell, Ticker: $HON

Trade Idea 1: Buy the stock on a move over 102.50 with a stop at 100.
A straight long trade that allows to collect the 25 dividend along the way.

Trade Idea 2: Buy the February 100 Calls (offered at $3.50 late Friday).
A way to participate in the upside with defined, lower capital at risk.

Trade Idea 3: Buy the February 95/105 bullish Risk Reversal (42 cents).
A leveraged upside trade that uses margin for the short 95 Puts.

Trade Idea 4: Buy the February/March 105 Call Calendar (66 cents).
An upside trade that looks for the stock to stay below 105 into February expiry. If it does break above then one plan would be to buy back the February Calls and sell upside March 110 or higher Calls for a March Call Spread.

Trade Idea 5: Buy the February/March 105 Call Calendar and sell the February/March 95 Put Calendar (23 cents).
The same as #4 but with added leverage from the short Put Calendar and protection on the downside through February Expiry.

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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which, heading into the last week of January sees the equity markets churning, but at different paces. Elsewhere look for Gold to continue in its uptrend while Crude Oil continues lower. The US Dollar Index also looks to continue higher while US Treasuries consolidate in the uptrend. The Shanghai Composite is taking a breather in its uptrend but Emerging Markets are breaking higher, at least in the short term.

Volatility looks to remain low but drifting gently higher over time slowing the wind at the back of the equity market. The equity index ETF’s are reacting differently to these factors. The IWM is continuing its consolidation but with sings it may break higher, while the SPY consolidates in its uptrend, perhaps passing the baton to the small caps. The QQQ has been acting mostly like the SPY but looks much stronger, with a possible break of a bull flag higher brewing. Use this information as you prepare for the coming week and trad’em well.

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